
Contract manufacturing is booming. The fundamental driver is the expanding global demand for – and access to – a vast array of healthcare products and services, each playing a critical role in patient outcomes. OEMs increasingly turn to outsourcing to meet this demand, so contract manufacturing organisations (CMOs) are reaping the rewards.
Entrusting CMOs with the production of complex components helps OEMs to focus on their core areas of expertise: R&D, design, marketing and sales. Working with CMOs also allows medical device developers to access specialised capabilities, reduce manufacturing costs, boost quality control, consolidate and simplify supply chains – and ultimately increase speed to market.
“Outsourcing to third parties is increasing as customers look to their suppliers to offer vital services that do not distract them from their own core business,” explains Emma Verkaik, CEO at the Association for Contract Manufacturing, Packing, Fulfilment and Logistics (BCMPA). “Contract manufacturing is a complicated business, and with the increased challenges on the operational side it can become more attractive to outsource – leave it to the experts and buy a product at a unit cost.
$668.2bn
The amount that the global medtech industry market is estimated to grow in 2024, from $642.5bn in 2023.
MarketsandMarkets
“Over the past few years,” Verkaik continues, “there have been many supply chain and operational changes that have made a once relatively simple process complicated to manage and execute within budget.” From scarce and expensive labour, increasing energy costs, and disrupted and unpredictable supply chains, to demands for sustainable options in packaging and ESG – all mean that outsourcing is often seen as the way forward when getting products manufactured. To put it differently, unit cost forward planning, reliable supply chain infrastructure, the cost-effective exploration of new markets, and the delivery of sustainable alternatives are all drivers of collaboration with CMOs, which can provide significant improvements to a host of operational processes.
$22.5bn
The estimated value of the global CMO/ CDMO* market in 2023. It is projected to reach $39.4bn by 2033, exhibiting a CAGR of 5.7% .
Future Market Insights (* contract development and manufacturing organisation)
“De-risking is a big piece of the puzzle, with today’s fractured global supply chains, so more portions of manufacturing volume are moved to CMOs around the world,” says Graeme Cameron, CEO of UK-based medical equipment manufacturer Pennine Healthcare. “CMOs give companies the opportunity to improve balance sheets while de-risking, and they can pass on workforce challenges to third parties, too.”
Regulatory changes such as the European Union Medical Device Regulation (EU MDR) also represent risk, but that risk can also be pushed out to third parties, rather than OEMs having to build or modify their own sites. Furthermore, demand for higher standards is greater than ever, so commercial partners need the confidence that a CMO can meet those standards.
Standing out in a crowd
Growth in demand is making the CMO market more competitive, and as outsourcing partners become more indispensable to OEMs, they need to focus on how to differentiate themselves from their rivals and create long-lasting, collaborative relationships.
“There is growing demand among OEMs for fullservice CMOs that can address more challenges, from front-end design and development work to highvolume production,” says Taylor Will, director of the Healthcare and Life Sciences Group at US multinational independent financial services company Harris Williams, which has looked in depth at the CMO market.
“The more services CMOs can offer, such as prototyping, tooling, sub-assembly, assembly, or supply chain logistics, the greater value they bring and the stickier the relationship,” Will continues. “CMOs also need consistent and impeccable quality in this demanding and highly regulated space.”
The most in-demand services are those that help OEMs get fully developed, commercially viable, high-quality products into customer hands as quickly as possible. In pre-production, this includes co-development, design and engineering, rapid prototyping, regulatory support, and product commercialisation services.
In terms of production, specialty capabilities like metal injection moulding are very difficult and timeconsuming to develop in-house. In post-production, meanwhile, OEMs seek CMOs strong in packaging, kitting and assembly capabilities. They might also look for the logistics support to help with delivery, or secure the quality control they need to ensure products meet the highest standards. Many of these capabilities require significant time and capital to develop, which can slow the process of bringing devices to market, so it pays to engage the best CMOs, as they may have already established those capabilities and will continue to invest in and refine them. They do so in order to spread the cost among several customers. When OEMs work with a full-service CMO, they save substantial time and effort that would otherwise be spent managing multiple vendors.
Cleanroom facilities and cleanroom assembly processes are essential parts of the manufacturing process that would be expensive for OEMs to develop in-house, but which are more cost-effective for CMOs. Similarly, CMOs can provide laser and plasma welding services, or passivation capability to protect components from corrosion – and many other processes – as part of their portfolio because they can spread the cost between different clients. Whatever is offered, at any rate, the key is to provide solid and dependable solutions with consistent service levels, as well as a proactive approach to engagement with OEMs.
“Moreover, the current climate is making purchasing of packaging and ESG mainstays for clients, and being on board with these will help manufacturers to be indispensable and create solid partnerships,” remarks Verkaik.
In some markets, location is also of paramount importance, hence the growing prevalence of onshoring – a move to manufacturing in or near the geography where the product will be sold – to overcome the supply chain issues and provide faster routes to market and remove uncertainty.
Location, location, location?
Working with smaller CMOs – perhaps located in or close to a key market – does have advantages. For example, they are inherently more nimble and can more easily provide fully customised services. With this in mind, at any rate, even larger CMOs are acquiring multiple domestic and international production sites to support supply chain risk-mitigation strategies, as reshoring and nearshoring remain hot topics for discussion. The pandemic was a big driver of CMO relationships. For instance, by the end of 2021, Pfizer and BioNTech had engaged more than 20 CMOs to ramp up the manufacture of vaccine doses. Nearshoring was a key part in this strategy, hence the engagement of partners across four continents. Pennine Healthcare is a prime example of a CMO benefitting from the industry’s appetite for onshoring or nearshoring. Its vast cleanroom facilities, and its expertise in the manufacture of medical device components via injection moulding and extrusion, are in demand among clients seeking access to the UK and EU markets.
$15.32bn
The amount the global biopharmaceutical CMO market was valued in 2023. It is projected to be worth $17.56bn in 2024, and $57.34bn by 2032.
Fortune Business Insights
“Many of our customers, including those in Europe, the Nordics and the Middle East, still value the quality of UK manufacturing, which they see as being of a high standard,” says Cameron. “Our ‘commercial partnership’ services, which include bespoke contract manufacturing, are driven by demand from medtech companies facing global supply chain issues caused by geopolitics, Brexit, Covid, conflicts and fractured supply chains. They want to de-risk and have a partner based in the UK – and close to Europe – as this is very important.”
CMOs close to end markets therefore clearly have value, but location alone is not enough. For some OEMs, there is also an advantage around net zero, sustainability, and social value credentials, like building jobs and supporting local communities. Regulatory considerations are also paramount, as is the so-called ‘triple-s’ value-add: safety, sustainability and security of supply.
$29.8bn
The amount that Europe’s biopharmaceutical CMO and CRO* market size was valued at in 2023. It is projected to be worth $53.8bn by 2030.
Market Research Community (*contract research organisation)
“In particular, a focus on design for manufacturing provides significant value for OEM customers and supports long-term relationships,” says Bradshaw. “Providing a variety of prototypes and services allows customers to work with a CMO through the entire manufacturing process, rather than jumping from a design house to a prototyping firm to a company with metal injection moulding or stamping capability.”
Clearly, a multitude of factors go into building long-term relationships – ones in which CMOs not only have the flexibility to offer a broad range of services, but also the willingness to invest in bespoke processes, or even physical infrastructure dedicated to the needs of a specific client.
“Clients are very keen on the partnership aspect,” adds Cameron, who has overseen the construction of a new cleanroom branded for one of Pennine’s customers. “Information flows both ways because it is not just a transactional relationship.”
To put it differently, the best working relationships clearly see the OEM trusting the CMO to add value across the entire product development cycle. All the same, being dependent on a single supplier naturally invites risk, meaning OEMs must choose carefully when consolidating and simplifying their supply chains. Efficiency, risk mitigation, and simplifying the supply chain are the key topics about which OEMs talk to CMOs. Crucially, the one topic that is rarely discussed is one that might seem an obvious priority: cost reduction. In fact, OEMs seem to rarely talk to their outsourcing partners about lowering their cost base, as the emphasis is firmly on expanding their footprint, or adding capability and capacity. Successful relationships are rarely built on a desire to find the lowest price option. Price erosion, in short, is far less important than adding value.
On the other hand, those CMOs that can add innovative processes to the equation – that are, in other words, willing to go beyond their traditional specifications – are those that will flourish.
For this to happen in practice, meanwhile, Verkaik warns that CMOs and their customers need to hone good communication, explaining that communication is the foundation of every good relationship, and relationships are what counts in the outsourcing world.